Can the Growth of Competitive Pressure and Hardening of Budget Constraints Reduce the Efficiency Loss due to State Ownership?
This paper studies how market structure and subsidisation affect the
productivity gap between state-owned enterprises (SOEs) and private
enterprises in the specific context of an economy with a long history of
state involvement in industry and continued government intervention
after the completion of privatisation. The results suggest that private firms
are 7–8 percentage points closer to the sectoral technical frontier and their
total factor productivity grows 0.5 points faster than that of SOEs. This
difference persists at all levels of competition, while neither ownership
type is superior in concentrated markets. When competition levels are
more than moderate, SOEs show greater response to further growth of
competition than private firms do. High subsidies reduce the productivity
advantages of private firms, but harder budget constraints do not make
government firms more efficient.